Mortgage lenders use credit scores to assess the risk of lending to a borrower. A good credit score can get you a better interest rate and more favorable loan terms.
Typically, mortgage lenders look for credit scores of 760 or higher to qualify for the best rates. This is because borrowers with high credit scores are considered lower risk.
Some lenders may consider credit scores as low as 620, but be prepared for less favorable terms. Credit scores below 620 may require a larger down payment or higher interest rate.
In general, lenders view credit scores as a snapshot of a borrower's credit history.
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Mortgage Lender Credit Score Requirements
If your score is below 620, you may still be able to qualify for a loan backed by the Federal Housing Administration. FHA loans tend to have higher interest rates and fees.
Fannie Mae's recent rule change introduces a game-changing approach by averaging the credit scores of co-borrowers to determine eligibility.
A low credit score of 610 can still be eligible for a loan if paired with a co-borrower who has a high credit score of 720.
This averaged score of 665 surpasses the 620 minimum for most loan programs, making these homebuyers eligible to purchase a home or refinance their existing mortgage.
FHA loans often come with higher interest rates and fees, but they can be a good option for those who can't qualify for a conventional loan.
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Impact of Low Credit Scores
Having a low credit score doesn't necessarily mean you're out of luck when it comes to qualifying for a loan. If your score is below 620, you may still be able to qualify for an FHA loan, but be prepared for higher interest rates and fees.
A credit score of 620 is the minimum required for most loan programs, but there's a way to make your score more attractive to lenders. Fannie Mae's new rule change allows lenders to average the credit scores of co-borrowers to determine eligibility.
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This means that if you have a co-borrower with a higher credit score, your overall score could be higher than you think. For example, if you have a credit score of 610 and your co-borrower has a score of 720, your averaged score would be 665, making you eligible for a loan.
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Credit Score Rules and Regulations
Fannie Mae has introduced a new rule change that allows lenders to average the credit scores of co-borrowers to determine eligibility.
This approach focuses on the overall creditworthiness of the borrowers, rather than the lowest credit score.
The rule change works by averaging the credit scores of co-borrowers, as seen in the example of two co-borrowers with scores of 720 and 610, resulting in an averaged score of 665.
This averaged score surpasses the 620 minimum for most loan programs, making homebuyers eligible to purchase a home or refinance their existing mortgage.
Co-Borrower Credit Scores
Fannie Mae's new rule change allows lenders to average the credit scores of co-borrowers to determine eligibility.
This approach is a game-changer for co-borrowers, offering numerous advantages, especially for dual-income households.
Under the previous rules, co-borrowers with vastly different credit profiles, such as one with a high score and the other with a lower score, were often rendered ineligible.
Fannie Mae's new rules give co-borrowers a better chance of gaining eligibility for a home loan, and both of their incomes can contribute to the final approval.
The new rule works by averaging the credit scores of co-borrowers, so if one co-borrower has a credit score of 720 and the other has a credit score of 610, the new score used to qualify for a loan is 665.
This averaged score surpasses the 620 minimum for most loan programs, making these homebuyers eligible to purchase a home or refinance their existing mortgage.
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